Everything About The New Tax-Free Home Savings Account In Ontario

June 23, 2023

You might’ve heard of a Tax-Free Savings Account (TFSA), a popular savings option in Canada that began on January 1, 2009. It allows Canadians like yourself to save and invest your money without paying taxes on growth or withdrawals.

Now, there's a new addition to the TFSA family – the Tax-Free Home Savings Account (FHSA), a registered account that is aiming to help more Canadians enter the housing market. In this blog, we will go over what the FHSA is, how it works, and everything you need to know about it.

What is a Tax-Free Home Savings Account (FHSA)?

An FHSA is a new savings account designed to help you save for your first home while enjoying the same tax benefits as the regular TFSA. You can open your very own FHSA to start saving for your first home on April 1, 2023!

How does an FHSA work?

The FHSA works in a similar way to a regular TFSA. You can contribute up to $8,000 per year (which is tax-deductible) and any growth of the account is tax-free.

The FHSA has a lifetime contribution limit of $40,000 dollars. (If you have not used your contribution room for the year, you can roll over the amount you didn’t contribute into the next year).

For example, if you contributed $3,000, this year, you would have an additional $5,000 available to contribute next year (5,000 + 8,000 = $13,000 limit).

To open an FHSA, you need to be a Canadian resident, 18 years or older (and not turning age 72 or older in the year). You must also have not owned a home where you have lived at any time during the calendar year before you opened the account or at any time in the prior 4 calendar years.

What kinds of investments can you make with your FHSA?

You can make the same types of investments as you can with your TFSA which includes mutual funds, publicly traded stocks, ETFs, securities, government and corporate bonds, and guaranteed investment certificates.

But keep in mind that you still have to meet certain criteria to make a qualifying withdrawal.

To qualify, withdrawals must be used on your first home, you must present an agreement to buy or build a qualifying home before October 1st of the year following the withdrawal year, and the qualifying house must be located in Canada. This home must also be your principal place of residence within one year after you have bought or built it.

When making a withdrawal you can make one or multiple withdrawals, but the account must be closed by the end of the year after your first withdrawal is made. Keep this in mind when deciding when to make contributions and when to withdraw.

If you don’t end up using the withdrawals on a home, you can choose to deposit it and capital gains into your RRSP, but you will be subject to the withdrawal taxes based on a registered retirement savings account.

What are the benefits of an FHSA over using the Homebuyer’s plan?

The Government of Canada also has a Homebuyer’s Plan also known as the HBP, which allows first-time homebuyers to withdraw up to $35,000, tax-free, from their RRSP (registered retirement savings plan).

You must pay what you withdraw back to your RRSP within 15 years but it is a good option for first-time home buyers who’re looking to make their first purchase.

With FHSA withdrawals, they do not have to be paid back. Withdrawals, after you pay back into your HBP, are taxed, whereas qualifying FHSA withdrawals are tax-free.

The best part about both of these programs is that they can be used in combination to make housing even more affordable. This means you can put $75,000 towards a new home, along with the capital gains your FHSA accrues.

What else do I need to know about a FHSA?

Here are some additional things to keep in mind about an FHSA:

  1. For the most part, you can transfer money, GICs, bonds, and mutual funds from your RRSP to your FHSA without any immediate tax consequences. This is only true if it is a direct transfer and does not exceed your unused FHS participation room.
  2. If you contribute more than your participation room for the year, you will generally have to pay a tax equal to 1% of the highest excess FHSA amount in the month of that contribution. You will also have to pay for each month this excess remains in your account so be mindful of how much you are contributing.
  3. Homes that do not qualify are where you only own tenancy rights, non-residential properties like stores, empty land not currently being developed into a qualifying home, vacation properties that are not a principal residence, and properties outside of Canada.

With the FHSA being such a new initiative, it’s good to have a base-level understanding to help you decide if contributing is for you. That being said, this is a great initiative for first-time home buyers, and increases the affordability for a new generation of homeowners!

Carlos Diaz
I believe in making the impossible possible because there’s no fun in giving up. Travel, design, fashion and current trends in the field of industrial construction are topics that I enjoy writing about.

Leave a Reply

Your email address will not be published. Required fields are marked *

Related Posts
July 24, 2024
Harrison Barnes House: The Malibu Marquee

Who is Harrison Barnes? Harrison Barnes is a professional basketball player known for his tenure in the NBA, including playing for teams such as the Golden State Warriors, Dallas Mavericks, and Sacramento Kings. He is not just celebrated for his impressive skills on the court but also admired for his charitable engagements and quiet leadership […]

Read More
July 24, 2024
Best Places to Live in New Hampshire in 2024

Imagine waking up to the serene beauty of New Hampshire, where rolling hills meet vibrant cities and charming towns. The crisp mountain air fills your lungs as you step outside, greeted by the warmth of the sun streaming through the trees. This picturesque state is a hidden gem, offering a lifestyle that blends outdoor adventure […]

Read More
July 24, 2024
Maison Bonne Vive: The Alexandria Abode

Maison Bonne Vive: A Luxurious Haven in Alexandria, LA Maison Bonne Vive, located at Prescott Rd, Alexandria, LA, is a striking representation of Louisiana’s architectural opulence, modeled after the iconic Oak Alley Plantation. This residence, completed in 2007 after six meticulous years of construction, epitomizes luxury and grandeur. The prominently featured high-quality materials and intricate […]

Read More
Welcome to Urban Splatter, the blog about eccentric luxury real estate and celebrity houses for the inquisitive fans interested in lifestyle and design. Also find the latest architecture, construction, home improvement and travel posts.
© 2024 UrbanSplatter.com, All Rights Reserved.
linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram